562 IGGUTHAPPA SOUHARDHA CREDIT CO-OPERATIVE LIMITED,MADIKERI vs. INCOME TAX OFFICER, MADIKERI

There is a delay of 386 days in filing the present appeal before us. The assessee has filed an affidavit explaining the reasons for the delay. It has been stated that the order of the Ld. CIT(A) was not received either through the e-filing portal or through physical service. According to the assessee, it became aware of the appellate order only subsequently and, upon obtaining

Having considered the affidavit and the submissions of the parties, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Following the settled principle that substantial justice should prevail over technical considerations, the delay of 386 days in filing the appeal is condoned and the appeal is admitted for adjudication.

The assessee is a Souharda Credit Cooperative Society claiming eligibility for deduction under section 80P of the Income-tax Act, 1961. From the documents furnished, the Assessing Officer observed that the assessee had earned a net profit of Rs. 12,78,271/- and had claimed the same as exempt under section 80P of the Act. The Assessing Officer, relying upon the provisions of section 80AC of the Act, held that deduction under Chapter VI- A could not be allowed in the absence of filing of a return of income and accordingly completed the assessment under section 144 read with section 142(1) of the Act on 25.11.2019 by assessing the total income at Rs. 12,78,271/- only.

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The principal contention of the assessee was that the amendment to section 80AC extending the requirement of filing of return to deductions under Chapter VI-A became effective only from AY 2018-19 and, therefore, the said provision had no application to AY 2017-18 under consideration.

The Ld. CIT(A), after examining the provisions of section 80AC, accepted the contention of the assessee that the amended provisions relied upon by the Assessing Officer were not applicable to AY 2017-18. However, the Ld. CIT(A) proceeded to uphold the disallowance on an altogether different basis by invoking section 80A(5) of the Act. According to the Ld.

Being aggrieved by the order of Ld. CIT-A, the assessee is in appeal before us.

The learned Authorised Representative submitted that the sole basis adopted by the Assessing Officer for denying deduction under section 80P of the Act was section 80AC of the Act. It was contended that the assessee had specifically challenged the applicability of section 80AC of the Act and the Ld. CIT(A) himself recorded a finding that the said provision was not applicable for AY 2017-18.

The learned Authorised Representative further submitted that after accepting the assessee's contention regarding section 80AC of the Act, the Ld. CIT(A) invoked section 80A(5) of the Act for the first time and sustained the disallowance on a completely new legal ground. It was argued that no show-cause notice was issued to the assessee proposing reliance on section 80A(5) of the Act, nor was any opportunity afforded to explain why the said provision should not be invoked. It was therefore submitted that the action of the Ld. CIT(A) was in violation of the principles of natural justice and the matter should be restored to the file of the Ld. CIT(A) for fresh adjudication after granting adequate opportunity of hearing.

The learned Departmental Representative supported the orders of the lower authorities.

We have heard the rival submissions and perused the material available on record.

It is an admitted position that the Assessing Officer denied deduction under section 80P of the Act solely by relying upon section 80AC of the Act.

However, after holding so, the Ld. CIT(A) proceeded to sustain the disallowance by invoking section 80A(5) of the Act. We find that section 80A(5) was not the basis adopted by the Assessing Officer while framing the assessment. The impugned order does not indicate that any specific show- cause notice was issued to the assessee proposing reliance upon section 80A(5) of the Act or that the assessee was afforded an effective opportunity to address the applicability of the said provision.

In our considered opinion, when the first appellate authority proposes to sustain an addition on a legal basis different from the one adopted by the Assessing Officer, the assessee must be confronted with the proposed ground and granted a reasonable opportunity of hearing. Such opportunity is a fundamental requirement of the principles of natural justice.

Since the disallowance has ultimately been sustained by the Ld. CIT(A) on the basis of section 80A(5) of the Act without putting the assessee on notice and without granting an effective opportunity to meet the case against it, we are of the view that the matter requires reconsideration at the level of the first appellate authority. Accordingly, in the interest of justice and fair play, we set aside the impugned order of the Ld. CIT(A) and restore the matter to his file for fresh adjudication. The Ld. CIT(A) shall issue an appropriate show-cause notice, afford adequate opportunity of hearing to the assessee, consider all factual and legal submissions that may be made by the assessee on the applicability of section 80A(5) of the Act and the claim of deduction under section 80P of the Act, and thereafter pass a speaking order in accordance with law. We make it clear that we have not expressed any opinion on the merits of the applicability of section 80A(5) of the Act or on the assessee's entitlement to deduction under section 80P of

In the result, the appeal of the assessee is partly allowed for statistical purposes.